The biggest hurdle facing many small entrepeneurs and start-up businesses is lack of cashflow. The best business idea won’t get far without investors or a lender willing to put up working capital. Yet without a track record of positive cashflow, traditional commercial lending sources simply aren’t accessible. A home equity line of credit (HELOC) can be used to fill this gap. From the business person’s vantage point, the HELOC offers several advantages:

-because HELOCs are “secured” loans based on the collateral of a person’s home equity, such loans are easier to get than “unsecured” commercial loans

-stringent environmental assessments are not required as they often are for business loans

-processing fees and closing costs are generally lower than for conventional business borrowing

-you’ll generally pay a lower rate of interest on a HELOC loan than you would on an unsecured business loan

-HELOC loan repayment terms are flexible (interest-only) and the loans can be paid off over a longer period than normal business loans

-documentation required for requesting a business loan (tax returns, financial statements, etc.) won’t be needed because the loan will be made based on the equity in your home as collateral

These advantages make home-equity loans highly attractive to small-business owners needing financing. Still, it is wise to explore alternatives before deciding on a HELOC. Defaulting on any loan is troublesome, but the consequences of defaulting on a home-equity loan can be especially grave.

Government loan programs are one example. In addition to federal small business loans, many city and county governments offer “revolving loan funds” for small businesses that are not highly publicized. Contact your local chamber of commerce or economic development agency for more information.